PCIT-1 Vs DCM Shriram Ltd. (Delhi High Court)
In the case of PCIT-1 Vs DCM Shriram Ltd., the Delhi High Court ruled that the rates charged by State Electricity Boards (SEB) or power distribution companies are the appropriate benchmarks for determining the market price of electricity. The court clarified that rates on the Indian Energy Exchange (IEX), a platform for trading surplus power, are not comparable for this purpose due to their volatility. The dispute arose when the Income Tax Department challenged the transfer pricing method used by the Assessee in its transactions with industrial units, alleging that the power supply rates were not at arm’s length. The Transfer Pricing Officer had initially relied on IEX rates, but the Income Tax Appellate Tribunal (ITAT) sided with the Assessee, noting that IEX rates fluctuate widely and are unsuitable for comparing electricity prices. The High Court upheld this view, emphasizing that the supply of power by SEBs is stable and not comparable to the short-term, spot rates on the IEX. The Court further reinforced that the Comparable Uncontrolled Price (CUP) method, a key method for transfer pricing, requires a high degree of similarity between the transactions, which was not present in this case. As a result, the Court dismissed the Revenue’s appeal, reinforcing that the Assessee’s method of determining the Arm’s Length Price (ALP) based on SEB rates was valid.
